China’s rapid transition from a low-cost manufacturing hub to an
innovation hotspot with growing foreign ambitions represents both a
threat and an opportunity for companies and investors around the globe,
according to Lux
Research.

Chinese firms in such sectors as energy storage, advanced lighting,
emerging electronics and red-biotechnology industries are more likely to
pursue both overseas growth and introduction of foreign capabilities
into China.

During 2009-2011, Chinese companies’ foreign merger and acquisition
(M&A) deals grew 75% to $28.1 billion. Simultaneously, M&A deals by
foreign companies in China increased 16 times – from $400 million to
$6.9 billion, suggesting new momentum in opportunities inside the
world’s fastest growing country. All indications are that this is only
the beginning.

“Entities around the globe need to navigate the new reality of an
increasingly crowded market in China where global leaders must learn to
operate while developing strategies to face the imminent threat in their
own backyard,” he added.

Sectors to watch. Energy storage, advanced lighting, emerging
electronics and red-biotechnology all sat in the upper-right quadrant
of the grid on Lux’s China Innovation Partnership Grid. This indicates
that companies in these sectors have both strong foreign growth
inclination and strong willingness to introduce appropriate foreign
partners into China. In comparison, water treatment and construction
material industries are closed to foreign growth and introduction.

IP drives openness. Chinese companies with a strong IP
portfolio are more open to foreign partnerships. Contrary to
conventional wisdom regarding China, it is the companies that value
IP, rather than just those looking to infringe upon the IP of others,
who are most open. Specifically, 51% of companies with strong IP are
open to partnering with foreign entities in China, compared to only
31% of those with weak IP.

Government relationships enable growth introverts. Companies
with poor government relationships are driven to look overseas, with
54% of these companies having meaningful foreign growth activities
compared with only 44% percent of the companies with good government
relationships. In many of China’s emerging technology industries,
government relationships represent domestic sales channels, reducing
the urgency for foreign growth.

The report, titled “From the Horse’s Mouth: How Chinese Companies Value
Foreign Partners and Opportunities,” is part of the Lux Research China
Innovation Intelligence service.

About Lux Research

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research approach focused on primary research and our extensive global
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for more information.